Amazon Inc. (NASDAQ: AMZN) has never been shy about investing ahead of demand.
Whether it was building its global logistics network or scaling Amazon Web Services (AWS), the company has always been willing to sacrifice short-term profitability for long-term advantage.
Although this approach has paid off historically, investors are starting to worry if this familiar strategy still carries the same margin of safety.
Especially with news that the company plans to increase its artificial intelligence (AI)-related spending this year.
Past Performance
Amazon has evolved from an online bookstore company to a mix of businesses that provide values in different ways.
For 2025, Amazon reported total net sales of US$716.9 billion, up 12.4% from the same period last year.
Its North America segment continues to be the largest engine, with net sales jumping 10.0% to US$426.3 billion.
International net sales rose 13.3% to US$161.9 billion while revenue from Amazon Web Services (AWS) soared 19.7% to US$128.7 billion.
In terms of profitability, the company clearly improved its ability to convert scale into earnings. Operating income grew by 16.6% to US$79.8 billion in 2025, and net income expanded 31.1% year on year to US$77.7 billion. Both rose faster than revenue.
But Amazon’s free cash flow trended lower, sinking 70.7% to only US$11.2 billion. This was primarily because of a sharp rise in capital expenditure, which increased 65.2% to US$128.3 billion. Most of the capital expenditure is for Amazon’s AI-related investments.
Tension Between Strategy and Cash Flow
Amazon’s operating performance has improved considerably in recent years.
Cost discipline has increased, and operating income has grown faster than revenue.
Usually, this would support stronger free cash flow and potentially valuation expansion.
However, with such a steep elevation in capital expenditure, much of the progress in operating performance has been absorbed.
This results in a more volatile free cash flow for the company.
But this is not because of a deteriorating underlying business. Instead, it’s the output of how Amazon is choosing to reinvest its cash in an aggressive manner.
From a strategic point of view, Amazon’s AI investments may be necessary to protect its long-term earning power. But, financially, it will definitely suppress near-term cash flow and increase the execution risk.
The AI Investment Plan
To support AWS’s long-term growth, Amazon’s management has announced that the company’s capital expenditure, the majority of which is AI-related, could approach US$200 billion in 2026. This is a notable increase from 2025’s capital expenditure of US$125 billion.
Additionally, Amazon recently announced a US$50 billion multi-year investment into OpenAI.
This will be a strategic collaboration between the two companies, which will see OpenAI spend US$138 billion on AWS over eight years. OpenAI has also committed to using AWS’s AI chip, Trainium, to power some of its AI workloads.
Amazon’s investment in OpenAI reinforces the company’s intention to remain a core player in the AI ecosystem.
The Difference Now
This is not the first time Amazon is facing scepticism and criticism after sharing its investment plans.
Its heavy spending on international expansions and AWS also drew criticism in earlier cycles.
But compared to before, Amazon is now a much larger business.
The absolute dollars involved are materially higher, and any mistakes made will be harder to absorb.
Not to mention, Amazon is not the only company investing heavily into AI. Amazon’s Other technology megacaps such as Meta Platforms Inc. (NASDAQ: META) and Alphabet Inc. (NASDAQ: GOOGL) are also in the game.
With many tech giants pumping in tremendous capital, it raises the risk of an industry-wide overcapacity.
In other words, Amazon’s history may provide some reassurance, but it does not eliminate the risk that returns on AI capital could be lower than previous investment cycles.
Get Smart: Ambition Needs Accountability
In my honest opinion, Amazon is investing ambitiously, but not without reason.
The scale of its AI investment does have the potential to translate into meaningful earnings growth.
But, that is only if the company can remain disciplined and demand materialises just as expected.
With that said, ambition alone does not justify capital.
Investors should look past the scale of the investment, especially with such a sharp increase in spending.
Look at the company’s free cash flow and whether the AI investments are driving durable earnings growth until those signals are clearer.
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Disclaimer: Charlyn T. owns shares in Amazon.
